Arabs estimated to invest about $180 billion outside Middle East

Arabs estimated to invest about $180 billion outside Middle EastImage Credit: Supplied

The UAE's safe haven status is not news. Its convenient location, political stability and transparent laws and regulations have made it the go-to destination for investors in the region. According to figures released by the Jordan Housing Developers Association, the value of Jordanian investments in the UAE property market was nearly Dh13 billion in the second half of last year — an estimated Dh5 billion each in Abu Dhabi and Dubai and about Dh3 billion in Sharjah. A report released by the Dubai Land Department in August placed Jordanians at the top of the list of Arab investors in the emirate's property market during the first half of last year.

Apart from Jordanians, there have been increasing numbers of Syrians, Palestinians, Iraqis and Libyans who are investing in Sharjah's off-plan market.

That's as far as the UAE is concerned. Driven by political instability in parts of the region and the weakened Eurozone economy, Arab investors are not limiting their interests to the Middle East — they are prudently investing globally.

According to CBRE's 2014 Middle East: In and Out report, investors from the region are expected to splurge $180 billion (Dh661 billion) in commercial real estate markets outside the region over the next decade. The major increase in the flow of Middle Eastern capital into global markets is partly a result of an extraordinary mismatch: the region has immense spending power, but there are not enough domestic institutional investment options.

Europe is the preferred target with around $145 billion expected to be invested over the next ten years, representing 80 per cent of total investments, says Nick Maclean, Managing Director of CBRE Middle East. About $85 billion will flow into the UK, and the rest is directed towards continental Europe. France, Germany, Italy and Spain are among the key target markets.

The lure of London

There are numerous reasons Arab investors are attracted to property in London. The predominant ones are its safe haven status with a stable political and legal environment, central time zone and reputation as a global financial centre. For decades, the extravagance of the mansions and town houses of Knightsbridge, Mayfair, Belgravia, Kensington and Chelsea have lured the Middle Eastern buyer. However, that too is changing gradually, as a new generation of Arabs, particularly those who've studied abroad and are well travelled, want to purchase apartments in addresses such as South Bank.

''The UK and the UAE have historical ties dating back centuries,'' says Henry Faun, Surveyor — International Residential at Knight Frank. ''There is a cultural affinity that enables UAE nationals and British citizens to travel to one another's countries and not feel too far away from home. Education has always been a key driver, with British schools, universities and military academies welcoming UAE nationals.

''Then there is the lifestyle in London, which continues to maintain its status as the world's most visited city with ample restaurants, theatres and shopping opportunities to suit all tastes.'' Additionally, Shane Marioni, Senior Consultant at IP Global, believes that London's strongest selling point is its status as a safe haven for investment, carrying little risk in terms of volatility and susceptibility to falling values over the medium or long term. Plus the sterling is seen as a secure currency with mild exposure to fluctuation.

London residential property has consistently outperformed other asset classes and is resilient to economic instability occurring elsewhere in the world, says Faun. Furthermore, the UK's decision last year to become the first non-Muslim nation to issue Sharia-compliant Islamic bonds has made it the top destination for Middle Eastern capital.

Other favourites

It's not just about cultural likeness; Arab investors are driven by locations that are safe havens, have a stable economy and secure currency and offer increasing rental yields, says Marioni. New York fits the profile as well as cities in Europe and Asia.

''Paris too is another popular investment destination as it offers likely ongoing capital appreciation. Also, the long-standing ties between Arabs and the French capital and its immense popularity as a tourist destination make it an ideal location for a second home.'' Marioni adds that in the Far East, Hong Kong is a popular location. It shows reliable sustainable rental yields and is a great shopping destination for Arabs.

London and Paris have historically attracted a very high proportion of Middle Eastern investment and this is not likely to change, says Maclean. ''However, Middle Eastern investors are increasingly diversifying their assets and looking beyond traditional hot markets. We expect to see a greater amount of investment in Germany and other parts of the UK in the short term.

''Spain is becoming a strategic destination, particularly focused around the hotel sector, [while] France is offering a vast choice of trophy assets and continues to attract strong demand for core assets and sectors.

''In the long term, investors are also looking for ways of putting more capital into both the Americas and Asia.''

Other emerging markets include China due to its strong and growing economy and the likelihood of property value appreciation, Brazil due to its emergence as an economic leader over the past decade and fall in prices, and India because of its proximity to the Middle East and strong labour relations. South East Asia also offers relatively low property prices, says Marioni.

What they want

Arab investors have certain common investment traits. According to Marioni, while they are known for appreciating trophy properties, they also prefer places with good access to retail hubs. ''[They also] tend to confine their interest to a small number of destinations compared to [people of] other nationalities,'' he says.

When looking for residential property in the international market, Faun says the priority is the quality of finish, whether it is off-plan or finished. ''Interior décor in both the property and its entrance areas must be of a level that is recognised as good quality globally.

''Security and porterage are relevant factors [as well]. [But] the location is perhaps most significant.''

What are the compelling drivers of this investor segment? ''Over the past decade, the two principal sources of investment coming from the region have been from sovereign wealth funds [SWFs] and private investors,'' says Maclean.

''However, in recent times SWF capital has dominated inflows from the Middle East. The reason is to save capital for the long term while [avoiding] creating a local asset bubble.''

Also, when looking at their portfolio in terms of target segments, Middle Eastern investors are disproportionately invested in offices (about 55 per cent of investment by value over the past ten years), adds Maclean. ''Offices obviously make sense for overseas investors because of the significant number of large lotsize transactions and ease of management once purchased,'' says Maclean.

''However, interestingly, in the past couple of years Middle Eastern investors have also started to show greater interest in retail as was illustrated by a string of high-street acquisitions in London and Paris. Interest in hotels is also noticeable and [stems] from a lifelong affair with the hospitality sector in home markets.''

Attracting investors

What are developers offering to lure the deep-pocketed Middle Eastern buyer? ''We are seeing extravagant, grand properties and developments pushing the comfortable expensive brand,'' says Marioni. ''[These] projects include large, comprehensive shopping facilities. Also, developers are gearing branding towards the top [end] of the market and peddling the exclusive tag, or baiting the buyer by developing properties close to top class educational institutes and universities.''

It is not only developers but markets on the whole that balance security with opportunities. Offering good returns invariably attracts strong demand and therefore high levels of liquidity.

''Where developers offer successful track records and expertise, the story for investors becomes compelling. Markets with all these ingredients always attract a higher level of inbound investment,'' says Maclean.

Find out a connection between London and Dubai residential property markets

Source: Sanaya Pavri, Special to Property Weekly


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